Like most of the major Western oil companies, British Petroleum has cut back its ties with Iran as international sanctions against the Islamic Republic have mounted in response to its nuclear program. BP several years ago halted investments larger than $20 million into Iran's energy infrastructure, remaining below the threshold for penalties set by the 1995 Iran Sanctions Act. And in the second half of 2009, the company halted the sale of refined petroleum products to Iran, which Tehran needs because of its limited domestic refining capacity.

But BP remains one of the most active major western oil companies engaged in joint-venture energy projects with the Iranian Ministry of Petroleum outside of Iran. In the last five years, BP has begun extracting around 4 million cubic meters per day of natural gas from a field in Britain's North Sea in a 50-50 joint venture with Iran, worth $1 million a day at June 15, 2010 spot prices. And BP operates one of the world's largest gas fields in Azerbaijan in a joint venture with Iran and other foreign oil companies, producing 8 billion cubic meters of gas per year, worth up to a reported $2.4 billion per year. (See TIME's video "Oil Spill Anxiety on the Bayou.")

The Iranian entity with which BP has partnered in these ventures is the Swiss-based NaftIran, a key player in Iran's energy sector and a major strategic asset for the country, according to U.S. officials, western intelligence agencies and outside analysts. "[NaftIran] is a big story for us," says one U.S. official who tracks Iranian strategic interests. NaftIran buys the vast majority of Iran's petroleum imports, the officials say, and it is "heavily funded" by the central government in Iran. U.S. officials believe some of the company's investment decisions are made by Iran's parliament, and that they are guided by diplomatic as well as business objectives  such as building influence with partners to weaken Western pressure on Iran.

From 2005 to 2008, NaftIran's revenue increased by 50%, from $14.7 billion to $21.9 billion, while its net income rose from $129 million to $134 million, according to its website. Over that same period, NaftIran's two major ventures with BP have come online. After making an initial investment of $500 million in the Azerbaijani Shah Deniz gas field, NaftIran began drawing 10% of the profit of the enterprise when it began producing gas in 2005. It now produces 8 billion cubic meters per year, according to Tamam Bayatly, communications manager for BP in Azerbaijan. BP owns 25.5% of the venture, as does Norway's StatOil, while Russia's Lukoil holds 10%, like NaftIran.

All participants in the joint venture have management say in investments and operations of the undertaking, according to Ms. Bayatly. The second phase of Shah Deniz, for which NaftIran expects to invest $1.7 billion, is scheduled to begin producing gas in 2016-17, and may produce as much as 16 billion cubic meters per year. See pictures of Iran's presidential elections and their turbulent aftermath.

In the North Sea, BP and NaftIran's subsidiary, the Iranian Oil Company, or
IOC UK Ltd., are 50-50 joint partners in the Rhum gas field which produces approximately 4 million cubic meters of natural gas per day, roughly 1% of the UK's daily consumption, according to a BP source. That amounts to some $1 million of natural gas per day at June 15, 2010 spot prices, according to Jonathan Gupton, an energy economist with the U.S. Department of Energy's Energy Information Administration. The total value of IOC's projects in the North Sea amounts to $794 million, according to the NaftIran website. In both the North Sea and the Azerbaijan ventures, BP takes a fee for operating the fields, then a cut of the profits. BP declined to say how much it makes from its joint ventures with Iran.

On Wednesday, the U.S. Treasury Department added IOC UK Ltd to its list of Iranian companies with which U.S. persons cannot do business. Under Secretary for Terrorism and Financial Intelligence Stuart Levey declined to say whether BP would be affected by IOC UK Ltd's designation, but indicated no immediate penalties, beyond public pressure, would target non-U.S. persons doing transactions with companies on the list.

NaftIran is also a shareholder in BP, holding 24,683,858 shares of the
company, according to Bloomberg, worth approximately $775 million, and
representing 0.8% of the company's common stock. An official at NaftIran,
reached by phone in Lausanne, declined to comment for this article.

BP's history of cooperation with Iran long predates the Islamic Revolution, the company actually having been founded as the Anglo-Persian Oil Company in the early 20th century. And its involvement with Iran's energy sector is hardly unique among among international oil companies. In addition to StatOil and Lukoil, German, French and Italian companies have joint ventures with Iran's Ministry of Petroleum. Iran has reached agreement with Spain's Gas Natural SDG S.A. to build a liquefied natural gas terminal in Croatia, according to Mark Dubowitz, executive director of the Foundation for Defense of Democracies, a hawkish think-tank that focuses on Iran's energy interests. "We've been able to identify a lot of projects, but to me it's the tip of the iceberg," Dubowitz says.

The breadth of Iran's efforts to expand joint ventures with foreign energy companies are a concern for U.S. officials hoping to isolate and weaken Tehran's leadership. "Energy is a major source of revenue for the Iranian regime which then gets comingled in their budget and provides support for everything the Iranian government does," says Juan Zarate, former top counterterrorism official at the National Security Council, now with the Center for Strategic and International Studies. "The Iranian budget has line items for support to direct anti-Americian activities, in some cases lethal anti-American activities."

As Congress prepares new U.S. sanctions legislation that would punish third-country companies doing business with Iran, some on Capitol Hill are considering whether to target companies involved in joint ventures. As they do, Congressional aides are weighing whether punishing such cooperation will enrage Western European or other countries, weakening the fragile anti-Iran coalition the U.S. has struggled to build over the last over the last 18 months. "The challenge here is that if you throw something in at the last minute you may have second order consequences that you haven't figured out," says one Congressional staffer involved in
negotiating the legislation.

Some U.S. officials and Capitol Hill staffers downplay the significance of joint ventures such as those between BP and NaftIran: "In many ways [Iran's] at a very early stage of the game," says one U.S. official. But Dubowitz and others are pushing Congress to include Iranian joint ventures in the coming sanctions package. "If Washington doesn't close this loophole, Iran could soon be a partner in energy projects off our own shores," says Dubowitz.